E-Cigarettes Coming of Age

Exponential growth in usage and innovative packaging lead some experts to believe e-tobacco may be the wave of the future.

By Bob Phillips, Contributing Editor.

In fiction there was Roy Hobbs, the athletic prodigy who came, unheard of, out of the Iowa cornfields to take the world by storm. In real life there is Mike Trout, the wunderkind from New Jersey—a real-life Roy Hobbs, who does it all and has become an MVP candidate at the age of 21. In beverages, there are energy drinks, the once-upon-a-niche segment that has morphed into a $1.5 billion monster—and expected to reach $2 billion in annual retail sales by 2016.

And now, add electronic cigarettes to that list.

Started as an Internet phenomenon, e-cigs have their roots in China and first made their way to this side of the world in the mid-1990s. Still a niche product at retail, the promise of future fortune has industry experts and convenience retailers alike buzzing about the category’s potential.

“It’s a fairly new category, and that’s what I find so exciting,” said Bonnie Herzog, senior market analyst at Wells Fargo. “I’m making some pretty big predictions. I think it’s possible that consumption of e-cigarettes could surpass that of traditional cigarettes within the next decade.”

“Remember when energy drinks first hit the market?” she continued. “People were saying, ‘Is it a fad, or is it a trend? What’s going on?’ I do think there are some similarities here.”

Like energy drinks a decade ago, e-cigarettes is a category in its retail infancy. According to Wells Fargo, e-cigarettes currently generate roughly $300 million at retail. But like energy drinks, that number is expected to grow exponentially—developing into a $1 billion category and offering gross margins comparable to traditional cigarettes, within a decade.

Some industry insiders, including Tom Kiklas, co-founder and spokesman for the Tobacco Vapor Electronic Cigarette Association (TVECA), expect the $1 billion barrier to be cracked in less than half that time. According to Kiklas, there are currently 1.5 million e-cigarette users. And while that number pales next to the 46 million Americans who consume traditional tobacco products, there is one key difference between the two segments: e-cigs are growing, while tobacco-based cigarettes are in decline.

“E-cigarettes are a very small category right now,” agreed Herzog. “But because the product’s attributes are so similar to traditional cigarettes, this makes them very attractive to existing smokers. The operative assumption is that the risk is reduced because you’re inhaling vapor. The notion that they offer the same sensation with less harm is an attractive proposition to a large group of consumers.”

‘New Age’ TobaccoIndeed, e-cigs share two key attributes with the once burgeoning and now maturing New Age beverage category: added value in terms of perceived health benefits by consumers, and innovation by manufacturers. E-cigarette manufacturers are not allowed to make health claims. If they did so, they would be subject to much tighter FDA regulations. But word of mouth is perhaps the most powerful marketing tool ever devised, and many experts predict that individual states will soon be jumping into the act to pull in the reins on e-cigs—at least as it pertains to young-adult or even teenage consumption.

“There’s no question in my mind that you will see states putting restrictions on them—and rightly so, because they could be considered a gateway [to tobacco usage],” Herzog said. “The consumer right now is the traditional smoker.”

This dynamic is similar to what retailers have seen in beverages, where consumers have gravitated in large numbers toward those products that are perceived to be better for you (i.e. sugar-free, caffeine-free and fat-free products).

“Say your spouse doesn’t want you smoking,” Herzog said. “He or she doesn’t like the smell. Well, here; you can smoke this.”

The enormous appeal of e-cigarettes stems from a variety of perceived advantages over traditional cigarettes. Not only are they perceived as healthier, but also cheaper and far more convenient. They can be used almost anywhere because no smoke is inhaled or exhaled; only vapor.

“It was cool to be able to light up while walking through a Walmart,” said Mark Rivera, an e-cigarette consumer in Stratford, Conn., adding that “no-smoking” laws did not apply to e-cigs in his region.

Garnering AttentionAnd here’s another way that the e-cigarette category mirrors new age beverages: Once a few brands gained some legs in the marketplace, the big boys were quick to dive headlong into the water. Lorillard was the first in when the tobacco behemoth acquired all assets of blu e-cigarettes—one of the leading brands in the e-cig market—in a cash transaction this past spring. Wells Fargo predicts other major tobacco companies will likely follow Lorillard’s lead.

On the flip side of being a gateway into the tobacco category, there are consumers who use e-cigarettes as a smoking cessation tool.

“I absolutely think that people are using it that way,” noted Herzog. “But maybe they don’t quit. Maybe they enjoy it. I know many smokers who enjoy consuming tobacco, but they don’t like the risk. I think it’s going to evolve; I think you’re going to see it regulated and taxed. Only Minnesota has an OTP (other tobacco product) tax on it right now, but there’s no question in my mind that you will see states putting restrictions on them. But the consumer right now is the traditional smoker.”

Regulation IssuesLast April, the FDA announced its plans to regulate e-cigarettes as tobacco products and will work with the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) to tax and regulate distribution, which means e-cigarette importers must have tobacco importing licenses, and sellers must have tobacco licenses in all 50 states.

States are still figuring out how to deal with e-cigarettes. In Hawaii, for example, the product was up against a proposal that aimed to tax e-cigarettes at 70% of the wholesale price. Luckily for Hawaiian retailers, the bill was not passed.

“We have no problem with the taxing of the product, but you have to tax it at the level of harm that it does, and it’s a less harmful product than a traditional tobacco cigarette,” Kiklas said. “So if you’re going to tax it, tax it at that level, and that level would be not very high.”

New Product ExcitementTedeschi has been testing disposable and rechargeable e-cigarette brands at 15 of its 190 stores, and is also testing the refill cartridges. “I don’t see the hype right now that seems to be prevalent in other parts of the country for e-cigarettes. It doesn’t seem to have reached New England yet, or at least the state of Massachusetts,” said Stephen Monaco, director of purchasing for Tedeschi Food Shops in Rockland, Mass. “But I believe electronic cigarettes and cigars are here to stay and will become more dominant as the year goes along.”

At Express Convenience Centers in Wisconsin, e-cigarette unit sales are low, but the company sees the sales and margins on electronic tobacco products as worth the investment, said Scott Glaser, merchandising manager and buyer for the 19-store chain.

“We do have a few committed e-cigarette customers, but it’s too soon to tell if customers are trading off from other tobacco categories or if they are capturing an entirely new customer,” Glaser said.

Comments

This site always has some good analysis of e-cigarettes in the CS retail space. But I have a nit to pick on this one. The first part of the article says eCigs made their way from China to the US in the early 1990’s. E-cigarettes are more recent that. The modern ecig was developed and brought to market in the early 2000’s. Significant importation into the US wasn’t until around 2007 or so.

I agree with Steve it was 2007. Maybe they have been in China since the 90’s but even when they came here in 07 they were not well known. They really started growing here over the last 3 – 4 years. This is just to the best of my knowledge. My numbers are not etched in stone.

Agreed. And there is no justification for taxes on e-cigarettes, especially in an environment where every major “public health” organization wants the taxes on e-cigarettes to be equivalent to those placed on cigarettes? Why would TVECA accept taxes of any sort when our opponents aren’t even willing to concede that the tax should be less than cigarettes?

I also agree. There also is little to no evidence that any level of harm from e-cigarettes exists. Unlike smoke, vapor does not deliver products of combustion such as tar, carbon monoxide, particulates, and thousands of chemicals created by the burning process. Research on the smokeless tobacco product snus shows no significant increase over non-users for all types of smoking-related cancers, heart disease or stroke. Reference: Lee PN. Summary of the epidemiological evidence relating snus to health: And, of course, since snus is not burned there is no risk of lung disease. There is no reason to expect that vapor, which contains even fewer chemicals than snus, should increase the risk of any disease over that of non-smokers. So far the only documented injury from e-cigarettes has been from a battery explosion. Batteries have also exploded in laptop computers and cell phones, with no “health-risk” taxes imposed on those products.

To be fair, Mr. Kiklas didn’t call e-cigarettes a “gateway.” That comment was made by Ms. Herzog of Wells Fargo. Either way, the allegation is completely unsubstantiated. One 2001 study of military recruits came to the conclusion that smoke-free tobacco users were 227% more likely to start smoking, however it didn’t seem to account for the fact that health groups have been telling people that smoke-free is just as hazardous as smoking (leading people to believe they may as well smoke) and smoke-free is often harder to obtain and less “social” than smoking. Boot camp is also hardly a typical environment to measure human behavior. Other studies (in real life environments) have shown little to no increase in smoking rates among smoke-free users and in countries where smoke-free use is common and accepted, smoking rates are far lower than those in which smoke-free health risks are equated to smoking. Sweden, for example, has a much higher number of male tobacco users than other EU countries but a far lower number of male smokers. If smoke-free use truly was a gateway to smoking then far more Swedish men would be smoking instead of continuing to use smoke-free.

There is no safe form of tobacco use. All forms contain nicotine and cause addiction and health problems

Nicotine dependence is an addiction to tobacco products caused by the drug nicotine.

jô
The only acceptable safety standard for a non-essential recreational drug with potential to harm bystanders is conclusive proof by independent research that passive exposure to e-cigarette vapour is “as safe as or safer than not being exposed to it at all.” NOT some junk posted by casaa

And e-cigarette proponents alone bear the entire burden of proving their product safe for use around others by this standard. The public does not owe it to them.

Nicotine in tobacco smoke is only part of the problem. The vast majority of cigarettes have hundreds of additives, many of which are known carcinogens. By comparison, most e-liquids have four ingredients: nicotine, food flavoring, vegetable glycerol, and propylene glycol. My opinion is that vaping isn’t good for you but it’s MUCH safer than smoking tobacco cigarettes. For reference: http://bit.ly/R37uyy

I wish the author would have spoken to more people in the industry besides TVECA. TVECA do not represent the majority of vapers (users of ecigs), and absolutely do not have the consumer’s best interests at heart.

Regarding taxation, since clinical studies have proved no nicotine in exhaled vaper (unless you actually kiss a vaper during inhalation, and even then it’s less than minimal), and ecigs have reduced harm by orders of magnitude (no tobacco, nothing burning), there should be NO tax other than sales tax. FDA-approved cessation methods have the same or higher nitrosamines as ecigs and have no tax. Ecigs are not a tobacco and are not drugs. They should be treated as a consumer product (or new category), period.

The big picture here is a generally positive view and outlook on e-cigarettes and their future as a mainstream consumer product, especially in convenience stores where traditional cigarettes have such a large presence. See http://ecigwerks.blogspot.com/ for more.

I believe Lorillard made a smart investment by buying out Blu Cigs. Phillip Morris announced its intention to dive in the market but it’s unknown which company they plan to buy out, if any.

Without a doubt, electronic cigarettes are on the rise. The reason is clear: it’s a healthier alternative to smoking. E-Cigarettes are an exit door from cigarettes rather than a gateway.

I personally believe the reason that still some smokers prefer to smoke cigarettes rather than electronic cigarettes is the social perception of these devices. Media has a lot to do with the perception. Let’s imagine a different public image. What if in every movie that there is smoking involved, e-cigarettes would replace cigarettes. Don’t you think the public view of e-cigarettes would change dramatically? Of course it would. But unfortunately, tobacco companies have much deeper pockets, thus more power to influence the public perception.

Hope to see more advancement in the technology of electronic cigarettes in the coming years.

I dont think anybody really claims that ‘vaping’ has a positive impact on somebodies health, if that were the case we’d all be jumping on the bandwagon – even non smokers. But if you look at it as an alternative to smoking, a short term solution to help on cutting down or giving up all together then yes, e-cigarettes are surely better for you. This is only in comparison to smoking. As mentioned already, although e-cigs do still contain nicotine (unless you opt for a 0mg) they do not contain some of the even more harmful chemicals such as tar, tobacco and carbon monoxide.

The unique
experience of smoking e cigarette gives a sense of relief to tobacco
smokers. The availability in different levels of nicotine makes it
easy for smokers to adjust themselves with time and ultimately quit
smoking.

The
electronic cigarette is 100% legal to smoke indoors, in pubs, clubs,
night clubs, offices etc. Electronic cigarettes come with refillable
cartridges which are available in a wide range of flavors and
nicotine strengths. You can get menthol, regular, apple and
strawberry flavored cartridges and they are available in light, full,
medium and zero nicotine strengths.

So net gain for
Lorillard is zero in buying Blu because they are carrying on selling a patent
infringing e-cig according to Ruyan. Making the real winner in the Lorillard Blu
by out: Ruyan. Remember Ruyan has only settled publicly with one firm that was
found not to be infringing on their fundamental patent.

Ruyan in their
settlement with Nutrade (Ciggee E-cigs) stated 3 of NuTrade’s patent pending e-cig
designs do not violate their fundamental patent. Nutrade, now in talks with all
the other major e-cig firms, can offer a USA patent pending design that has
been proven not to infringe on the Ruyan fundamental patent.

When you add that to the fact
that the Nutrade USA patent pending e-cig lasts longer then Blu and cost about
50% less, you wonder what Lorillard was thinking spending 135 Million for Blu. With
the street estimate for Nutrade around 5 million Lorillard certainly was not thinking
about their stock holders, because if that were the case, they would have invested
in patents not product puffin’s.

One of the main problems that the distributor and ecigarette ,market face because the place from which any person get ecigarette easily reach and selling market wiil increase.and there are especially environment where every public organization wants to equivalent those place on cigarettes.also ecigarette would be better than normal cigarettes. it is tobacoo free cigarettes also there is no harmful for our health.

Cigarette is not good for health. But E Cigarette is very healthy. It does not hurting people’s health….E-cigarette is not very popular in India. But when time will passing then Indian market also accept this product. And its a new for new smokers.

Don’t be afraid of new things – be vigilant, but don’t be so quick to write these things off as dangerous. People need to think about the potential upside in terms of the world’s health. The implications for this device as huge.

Users of e cigarette are increasing very fast because of its amazing features. I suggest other people to don’t afraid to use new things just try it and realize its effect on your life. To buy and use e cigarette will definitely prove as a good investment for you.

Definitely e cigarette built very strong future against tobacco cigarette because the number of smokers of an e cigarette are increasing very fast. E cigarettes are available with various features and various types with decent and stylish look as well it is not harmful as tobacco cigarette that’s why growth of an e cigarette is very fast.

The tool contains an atomizer which heats liquid having nicotine and that turns this into a vapor that’s once more inhaled by the individual. Actually, it makes a vapor cloud that takes after with the smoke created by regular tobacco cigs.

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